Suitable for: Sole Traders who have purchased a car and need to lodge BAS
Tax Difficulty: Advanced
Airtax Experience: Repeat users
Time to Read: 5 minutes
You may at some stage buy a car for the purposes of furthering your business enterprise. This can be done by paying cash, taking out a car loan, or a combination of both. This topic is one which causes a lot of confusion amongst our users, as the implications of purchasing a car are different for GST and income tax purposes, and the concept is quite technical.
The purpose of this article is to explain when and how a car purchase should be accounted in your BAS. If you have sold a car, you should read the second part of this article here.
The ultimate objective here is for you to correctly claim the cost of any car purchase on your BAS, to ensure that you’re compliant with the ATO guidelines.
If you buy a car and pay GST on the purchase (for example, if you purchase a car from a dealer who has charged GST on the purchase), you’re generally entitled to claim a GST credit on the full purchase price to the extent that you use your car for business purposes.
Typically, getting to and from your sole place of work (e.g office, etc) does not count as a business purpose, however, the following purposes may:
- driving to visit clients during the working day, and
- You are a rideshare driver, and have purchased the vehicle solely/partly for this purpose
If you buy a second-hand car from someone who is not registered for GST (for example, a private seller), you cannot claim a GST credit. This means you should answer “no” to the question “Did you purchase a car and pay GST?”, as shown below:
So how do I claim this purchase in my BAS?
To account for a car purchase, the whole purchase price of the car (inclusive of GST) should be included in the BAS period that the purchase was made in. The treatment is the same if you purchase the vehicle through a loan arrangement - the whole cost of the car is recorded in this BAS - as this is the point at which the user has legal control of the asset.
The business use percentage applied to the car purchase can be determined through the use of a logbook, or a previous logbook result if the business use of the new vehicle is expected to be the same.
Once you have claimed the purchase of the car in the BAS period in which the transaction occurred, you will not need to record anything relating to this purchase in future BAS periods (including any loan repayments) - as all of the GST attributable to this car will have already been claimed.
**NOTE** Interest payments typically do not contain GST, and are not claimable through the BAS
Below is a background of an example Airtax user's car purchase:
- In the third month of the quarterly BAS period, the user purchased a new car for $25,000 (inc. GST) using a loan arranged through a bank.
- They have determined from their logbook that the business use percentage that relates to the running of their car is 70%.
Even though this user has purchased the car through a loan arrangement, the whole cost of the car is recorded in this BAS - as this is the period at which the user has legal control of the asset. This is just as though the user had paid the entire cash sum.
They can still use the same business use percentage of 70%, as the user expects to use the car for a business purpose to remain the same.
Below shows how this user will complete the ‘Car purchase’ section of their BAS for this period:
Accounting for the car purchase is a more difficult concept, which we typically see our users prefer discussing through our Business Assist service with a qualified PwC Tax Specialist. If you’re at all still confused by this topic, you should refer to Business Assist. Our ultimate goal of this phone support service is to get you to a confidence level that will empower you to complete your Airtax BAS by yourself in the future. We’re driven to boost the level of tax understanding and competence of our users, and Business Assist has been proven to be an awesome way for us to help accomplish this for hundreds of users.
For information on how to claim the car purchase on your Income Tax Return, refer to our Tax Assist service.
What you’ve learned:
- When to claim GST on a car purchase
- How to correctly claim GST associated with a car purchase on the BAS
- What to do if the car purchase is made with a loan arrangement
- What business use percentage should be used for the car that is purchased